Big rate hike coming: RBI ‘desperate’ to halt inflation
18 Jan 2011
In a hint that the Reserve Bank of India's interest rate hike during its policy review on 25 January may be more than expected, RBI governor Duvvuri Subbarao on Monday said the central bank is ''desperate'' to control inflation.
Addressing students at a university function in Mumbai on Monday, Subbarao said that while other countries are fighting deflation, India was grappling with surging inflation.
"When I meet other central bank governors, they tell me `why don't you give us a bit of your inflation.' That's how desperately they want some inflation and how desperate we are to control inflation," he quipped.
Subbarao said the central bank needed to calibrate monetary policy in order to manage inflation, but at the same time it also need to ensure that growth is not hampered. He said that the real challenge while calibrating the monetary policy was to take into account the demands of inflation management and the demand of supportive recovery.
RBI had last year upped its repo and reverse repo rates six times to 6.25 per cent and 5.25 per cent respectively, to normalise a monetary policy that was on expansion mode since the onset of the global financial meltdown in late 2007.
Experts who were considering a conservative rate hike of about 25 basis points (bps) are now contemplating a hike of above 50 bps. ''Since RBI has already hiked interest rates by about 50 bps, the general feeling was a hike about 25 bps, but at 9 per cent food inflation, there is a definite problem and I feel a 50 bps hike is imminent,'' said one of them.
